Finance

Altice USA Closer to Cost-Cutting Goal

Goei says operator is ‘turning the screws’ 3/09/2017 1:05 PM Eastern

Altice USA told analysts this morning that it has reached the half-way point in achieving what some analysts earlier believed was an overly ambitious cost-cutting target.

When it purchased Cablevision Systems in June 2016, European telecom giant Altice said it could remove $900 million in costs from the company over time, a big reason for justifying the $17.7 billion price tag for Cablevision. Many analysts believed that Altice was being overly ambitious.

Altice had also earlier identified about $215 million in cost synergies at Suddenlink.

On a conference call with analysts to discuss its fourth quarter results, Altice said it has slashed operating expenses (not including programming costs) at Optimum (the former Cablevision systems) from $79 per subscriber per month in 2015 to $59 per subscriber per month in Q4 2016. At Suddenlink, which Altice purchased in December 2015 for $9.1 billion, opex was reduced from $48 to $43 per customer per month in Q4.

On the call, Altice USA CEO Dexter Goei said the cable operator has taken out at least half of the targeted costs at Optimum and Suddenlink, largely through keeping a close eye on vendors and expenses. For example, Goei said that before Altice acquired the companies, Optimum and Suddenlink had relationships with about 14,000 third-party suppliers. That number today is about 2,000.

“We’re turning the screws a little more,” Goei said on the call. “We’re very thoughtful of how we spend the money.”

Much of that reduction was through redundancies – paring down to a single billing company and the like. While Goei said that some of the synergies were through voluntary employee separations, staff reductions haven’t played a major role in the cost cutting. In August, Altice shuttered a Connecticut call center but hasn’t had any major staff reductions.

Goei added that focusing on getting volume discounts from vendors and removing clutter is “driving a big chunk of these early wins.”

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said that he isn’t surprised that Altice has managed to cut costs so dramatically – they come from a European telecom background where cost cutting is much more aggressive – but he said the low-hanging cost target fruit has basically been picked.

“The challenge for Altice is if they can continue to generate RGU growth with these reduced expense levels,” Wlodarczak said in an e-mail message. “I think most of the easy synergies are over and the next big ramp with be the benefit of moving directly to [fiber-to-the-home] which allows them to take out substantial operating costs (repeaters, employees servicing the network, service calls, truck rolls).  The big question on investors minds is how they can skip DOCSIS 3.1 and go to FTTH while keeping U.S. capex relatively flat. They are starting with the investment this year.”

Altice USA also managed to keep profit margins high in the quarter – 38.2% at Optimum and 47.3% at Suddenlink, which Goei said were the highest in the U.S. cable industry.

Wlodarczak said the trick will be to maintain those margin levels for the long term. If they can, he added it will put pressure on other operators to be more aggressive on the cost cutting front.

News of the efficiencies come as Altice USA said it lost about 24,000 basic video customers in the fourth quarter (a loss of 15,000 at Optimum and a 9,000 loss at Suddenlink), compared to a combined loss of 11,000 in the previous year. Broadband customers increased by 34,000 customers – 15,000 at Optimum and 19,000 at Suddenlink. Revenue at Optimum was up 4.4% in the quarter while at Suddenlink it rose 6.7%.

 

 

 

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